EA 2000 AR 2000 CONSOLIDATED FINANCIAL HIGHLIGHTS Fiscal years ended March 31, 2000 1999 % change (In millions, expect per share data) Net Revenues $1,420 $1,222 16 % Operating Income 154 105 47 % Net Income 117 73 60 % Diluted Earnings Per Share 1.76 1.15 53 % Operating Income* 172 155 11 % Pro-Forma Net Income* 130 114 14 % Pro-Forma Diluted EPS* 1.95 1.81 8 % Working Capital 440 333 32 % Total Assets 1,192 902 32 % Total Stockholders’ Equity 923 663 39 % 2000 PRO-FORMA CORE FINANCIAL HIGHLIGHTS Fiscal years ended March 31, 2000 1999 % change (In millions, expect per share data) Net Revenues $ 1,401 $1,206 16 % Operating Income 208 114 82 % Net Income 154 79 95 % Pro-Forma Net Income* 164 120 37 % $ $1,420 1.95 $1,401 $130 $1.81 $1,222 $1,206 $164 $114 $909 $1.19 $898 $120 $73 $74 98 99 00 98 99 00 98 99 00 98 99 00 98 99 00 Consolidated Consolidated Pro-Forma Consolidated Pro-Forma Pro-Forma Core Pro-Forma Core Net Revenues Net Income* Diluted EPS* Net Revenues Net Income* (In millions) (In millions) (In millions) (In millions) FISCAL 2000 OPERATING HIGHLIGHTS • 16 percent increase in EA core net revenues • Signed agreement to be exclusive provider of games • 37 percent increase in EA core net income* on AOL properties • 69 titles released: • Acquired: ™ – 30 PC –DreamWorks Interactive ™ – 30 PlayStation –Kesmai –8 N64 –PlayNation –1 Mac * EXCLUDES GOODWILL AND ONE-TIME ITEMS IN EACH YEAR. AR 2000 EA CHAIRMAN’S LETTER TO OUR STOCKHOLDERS During fiscal year 2000 Electronic Arts (EA) significantly enhanced its strategic position in the interactive entertainment category. While continuing to create the world’s greatest games on current platforms, EA has taken action to capitalize on technology breakthroughs and to help insulate the company from the cyclical economics that historically impact our industry during console transitions. Despite the console market transition beginning sooner than expected, we continued to grow revenues and profits during the year. We reached an important agreement with America Online, Inc. to be the exclusive provider of games on all AOL sites, increased market share on the critical PC platform, and positioned ourselves for leadership on the next generation of console platforms. By managing the industry’s best development talent, creating strong franchise properties, and expanding our global distribution, we increased revenues and profits in a challenging market environment. Including the results of our new online division, EA.com,(1) consolidated CHAIRMAN’S LETTER net revenues increased 16 percent to $1,420 million. Consolidated net income, on an as-reported 01 basis, including goodwill and one-time acquisition related charges, increased 60 percent to $117 million; while consolidated diluted earnings per share increased 53 percent to $1.76. Consolidated pro-forma net income,(2) excluding goodwill and one-time acquisition-related charges in both years, increased 14 percent to $130 million. Consolidated pro-forma diluted earnings per share(2) increased 8 percent to $1.95. Our core business, which excludes the results of EA.com, grew pro-forma net revenues(3) 16 percent to $1,401 million. Pro-forma core net income(4) increased 37 percent to $164 million for the core business. STRONGLY POSITIONED ON KEY PLATFORMS We had multi- recent holiday season. We expect to have an ongoing collab- ple successes on the PC platform in fiscal year 2000. SimCity oration with DreamWorks SKG, allowing us to create unique 3000™ and Command & Conquer™: Tiberian Sun™ each achieved and commercially viable content for the interactive entertain- No.1 status on the PC best-seller list. For calendar year 1999, ment market. both products finished in the Top Ten, representing our best Given this unique combination of assets, we believe that performance ever on the PC platform. In addition, we created Electronic Arts is well positioned to navigate successfully an outstanding new franchise property—The Sims™—which through the transition to the next generation of console tech- was named Game of the Year by the Academy of Interactive nology. Equally important, we view cyclical transition as an Arts and Sciences. opportunity to strengthen and streamline the company, and On the console platforms, our EA SPORTS™ titles maintained to clearly establish EA as the market leader of the future. a leadership position, with Madden NFL™ 2000 once again winning the all-important football battle in North America. INVESTING FOR ONLINE LEADERSHIP While still in its infancy, FIFA 2000 dominated the European “football” category, with analysts project that online interactive entertainment will NBA Live 2000, NHL® 2000, NASCAR® 2000, Triple Play 2001, generate revenues of up to $2 billion in 2002(5), an increase of Knockout Kings™ 2000 and Tiger Woods PGA TOUR® Golf 2000 more than 500 percent from $300 million in 1999. During the all leading in their respective categories. In addition, we bol- year, we made a significant investment in EA.com, which we stered our impressive motorsports lineup by signing a long- believe will help to establish us as the leading provider of term license with Formula One. In March 2000, we released interactive entertainment in the emerging online market. our first F1 products, rounding out the strongest collection of EA.com pro-forma revenues(1) totaled $21 million in fiscal year sports properties in our industry. We also secured an exclu- 2000, with investment spending of $63 million, resulting in a sive five-year agreement for the James Bond license and will pro-forma net loss(6) of $34 million. We expect that the online release The World Is Not Enough on multiple platforms in the portion of our business will continue to generate a net loss in CHAIRMAN’S LETTER coming year. In 1999, Tomorrow Never Dies was one of the the coming fiscal year, as we position ourselves for this sig- 02 leading products on the PlayStation® platform. nificant new opportunity. We further strengthened our Studio organization with the In November 1999, we announced a wide-ranging strategic acquisition of DreamWorks Interactive, LLC. DreamWorks alliance with America Online. The agreement provides developed and published Jurassic Park: The Lost World and Electronic Arts with control of all programming, pricing and released Medal Of Honor™, a best-selling title during the most promotion on the AOL® games channel. This is an unprece- dented AR 2000 EA dented arrangement, which provides EA with immediate content in our Studios and our new EA.com division, along access to nearly 60 million online consumers including 22 with the unparalleled distribution and reach provided through million AOL subscribers. We have created a separate class of our partnership with AOL, uniquely positions us for success in stock, Class B Common Stock (Tracking Stock), to track the this environment. We plan to launch the EA.comSM site in sum- performance of the EA.com business, and plan to take this mer 2000, with the full service operational in calendar 2001. security public at a later date. AOL owns 10 percent of the Fourth, but most importantly, we strive to be the No. 1 Class B Common Stock with a warrant for an additional 5 per- “people company” in the entertainment industry. Without cent ownership. News Corp., as partial consideration for the doubt, our employees are the lifeblood of our company. They sale of their Kesmai development group to EA, received 5 create the award-winning products, market and distribute percent of the tracking stock. We believe that the partnership them more effectively than any competitor, and provide the with AOL, News Corp., EA Studios and our existing publishing support functions that enable EA to be the premier company organization is a formidable combination that will facilitate mar- in our industry. It is imperative that our people are well ket leadership in this rapidly growing segment of the Internet. trained, strongly motivated, recognized for their accom- plishments and highly productive. We take this challenge STRATEGIC GOALS FOR THE FUTURE As we look ahead, we seriously and are constantly working to enhance the quality are focused on four strategic initiatives. of our organization. First, our goal is to be the market leader on the next We have every confidence that we can achieve each of generation of video game consoles, which includes Sony’s these strategic objectives, and, in doing so, that we will con- PlayStation®2 computer entertainment system, Microsoft’s tinue to grow and prosper not only during the current console Xbox™, and Nintendo’s Dolphin. We shipped our first product transition period but also in the years ahead. for the PlayStation 2 console in Japan in May 2000. Additional I would like to acknowledge our employees for their tire- titles will be released beginning in the Fall of 2000 in con- less efforts, commitment to excellence and dedication to junction with the launch of the PlayStation 2 console in North making EA the worldwide leader in our industry. America and Europe. Finally, I thank our customers and stockholders for their Second, our objective is to be the leading publisher world- continuing support and trust in Electronic Arts. wide on the PC platform. We currently hold that position in Europe and Asia Pacific and intend to increase our share in Sincerely, fiscal year 2001. In North America, we believe we can move into the leadership position with a strong portfolio of titles that includes The Sims, Command & Conquer: Red Alert™2, American McGee’s Alice™, Black & White™, The World Is Not Enough, and a full line up of EA SPORTS products. Third, we intend to be the leading provider of interactive Lawrence F. Probst III entertainment on the Internet.